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Dark Money Group Tells the Government it Won’t Spend on Elections While Bragging to Donors it Will "Win Senate Seats" with "No Donor Disclosure”

Brendan Fischer

Apr 26, 2016

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And the FEC Does Nothing About It

Newly-released documents expose how shadowy political operatives flout campaign finance law to keep donors secret – and that federal regulators are asleep at the switch.

The Commission on Hope Growth and Opportunity (CHGO) formed in February 2010 – just weeks after the U.S. Supreme Court’s decision in Citizens United v. FEC –told the Internal Revenue Service it would not “spend any money attempting to influence” any “election.”

Shortly after making those sworn assertions to the IRS, however, CHGO officials prepared a memo and PowerPoint slides telling donors that the group’s goal is to “win Senate seats” and to “make a measureable impact on the election outcome” but “with no donor disclosure.” Citizens United, the group told donors, “creates unprecedented opportunity.”

CHGO would go on to spend more than $4 million on the 2010 elections, most of it on ads expressly calling for the election or defeat of candidates. This election spending amounted to at least 85 percent of CHGO’s expenditures that year.

Yet CHGO declined to register as a political committee with the Federal Election Commission (FEC), the government agency tasked with enforcing campaign finance laws. Nor did it report any of its spending nor disclose any of its donors to the agency.

And in its tax filings with the IRS for 2010, CHGO answered “no” to the question, “Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office?”

After that, CHGO officials apparently lied to FEC, then dissolved the organization and split the remaining funds among its top officers.

Unfortunately, the news here is not just that a dark money group appears to have lied to the FEC and the IRS, but that neither agency cares enough to protect the integrity of their own investigations, much less uphold the law.

Dark money groups already knew that they could ignore campaign finance law with little fear that the FEC would scrutinize their activities or launch an investigation.

But now, in those rare instances where the FEC does look closely at a group apparently ignoring the law, political operatives now have been given reason to think they can lie to investigators--and still get away with it.

One of Worst Dark Money Offenders

CHGO isn’t alone in successfully abusing the system. In the years since Citizens United, political operatives have increasingly used “social welfare” nonprofits organized under section 501(c)(4) of the tax code to evade campaign finance disclosure laws.

Many groups have escaped sanction because the FEC has consistently deadlocked on almost every major issue. The three Democratic commissioners usually vote in favor of enforcement and the three Republican commissioners apply strained readings of the law to avoid finding violations.

The IRS, meanwhile, has declined to enforce rules requiring that nonprofits be "primarily” engaged in activities that advance social welfare, rather than electoral politics.

But even in an era where groups are given wide berth to push the legal envelope, CHGO is an extreme case.

While some dark money groups evade disclosure laws by running electoral “issue ads” and spending less than half of their overall budget on explicit electoral activities – for example, by making transfers to other politically-active groups – CHGO spent the vast majority of its budget on ads expressly calling for the election or defeat of a candidate, and didn’t disclose the spending to the FEC, much less the source of its funding.

After Citizens for Responsibility and Ethics in Washington (CREW) filed an FEC complaint against CHGO in 2011, the agency launched an investigation.

As the investigation began, CHGO officials told the FEC that the group was merely a “social welfare organization” that “functions as an economic ‘think tank,’”—statements obviously contradicted by CHGO’s declaration to donors that its goal was to “win Senate seats” “with no donor disclosure,” and by extensive evidence of spending on races across the country.

That’s not all, as CREW Litigation Counsel Stuart McPhail wrote on the organization’s blog:

“When the FEC presented CHGO with those advertisements that the FEC knew the group had run and asked CHGO if it ran any more ads,” McPhail wrote, “CHGO falsely claimed that there were no more ads, covering up the existence of ads it ran in New York and Massachusetts that the FEC had missed. When asked about its vendors, CHGO denied the existence of vendors who were to later provide the FEC with important information about CHGO’s activities.”

The apparent lies didn’t stop there:

As the FEC investigation progressed, CHGO decided to disband, but it still had $1 million in the bank. CHGO had told the IRS that it would give the leftover funds to charity or refund them to donors. But instead, three CHGO officials split the $1 million amongst themselves as a “fundraising commission.” What’s more, CHGO told the IRS that year that it didn’t spend any money on fundraising.

The reported founder of CHGO, Scott Reed, told FEC investigators he “could not recall being involved in the formation of CHGO and could not recall having any contact with anyone involved with CHGO after its formation.” But the investigation indicated that Reed approved the content, production, and placement of all CHGO ads, and that he made the decision to split up the remaining $1 million amongst himself and two others.

A consultant for CHGO, Wayne Berman, told FEC investigators he “only offered informal and infrequent fundraising advice strictly on a volunteer basis.” But he also received a third of the $1 million in leftover funds as a “fundraising commission.”

Despite these clear violations of federal campaign finance law and potential criminal violations for lying to federal agencies, the FEC’s three Republican commissioners voted not to pursue enforcement.

Although the GOP commissioners initially supported a finding that CHGO had failed to report its spending on several ads, they refused to find that it should have registered as a political committee, and ultimately voted to close the case because CHGO had voluntarily disbanded.

CREW has sued the FEC for its dismissal of these clear violations and asked the Department of Justice to determine whether CHGO violated federal law by lying to FEC investigators.

The Campaign Legal Center, similarly, has had to resort to suing the FEC after it declined to enforce laws prohibiting the use of straw donors to evade disclosure requirements.

Unfortunately, unless a judge or the DOJ gets involved, there no longer appears to be any credible threat of enforcement for even the most obvious violations of federal campaign finance law.